"EUR/USD has continued its downward trend since peaking around 1.2080 at the end of January, as the divergence in economic prospects between the United States and the Eurozone has become increasingly evident. This movement reflects the current macroeconomic landscape, where the US dollar remains supported by relatively stable growth and inflation that is still above target, while the Eurozone faces slower expansion and lacks sufficient policy momentum to trigger a meaningful shift in expectations."
"While growth has cooled, inflationary pressures have not fully subsided. Core PCE remained around 3.0% year-on-year, well above the Federal Reserve's 2% target, forcing the central bank to maintain a cautious stance. The combination of slower but still positive growth and persistent inflation makes it difficult for the Fed to signal an early easing cycle. The 'higher for longer' narrative continues to gain traction, keeping US Treasury yields relatively attractive compared to Europe."
"US economic data suggest that growth has moderated but has not deteriorated significantly. GDP expanded by only 1.4% year-on-year in the fourth quarter, a notable slowdown from 4.4% recorded in the third quarter, partly reflecting the impact of a prolonged government shutdown that disrupted public spending and investment. Nevertheless, for the full year 2025, the US economy still grew by 2.2%, its lowest pace since 2020, but sufficient to avoid a broad-based recession."
EUR/USD has declined from January peaks due to diverging economic conditions between the US and Eurozone. US growth moderated to 1.4% in Q4 2024 from 4.4% in Q3, with full-year 2025 growth at 2.2%, the slowest since 2020. Core PCE inflation remains at 3.0%, above the Federal Reserve's 2% target, preventing early rate cuts. The US trade deficit widened to $901.5 billion in 2025, near historical highs. The Federal Reserve maintains a cautious stance prioritizing price stability. Meanwhile, the Eurozone faces slower expansion without sufficient policy momentum. The persistent US inflation and positive growth support higher Treasury yields, creating an attractive yield differential that strengthens the dollar and pressures the euro.
#eurusd-currency-pair #us-dollar-strength #eurozone-economic-weakness #federal-reserve-monetary-policy #treasury-yield-differential
Read at London Business News | Londonlovesbusiness.com
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